As featured on p. 218 of "Bloggers on the Bus," under the name "a MyDD blogger."

Monday, April 27, 2009

Not Just Geithner, They're All In Bed Together

There have been two very informative and revealing articles on Treasury Secretary Tim Geithner recently: this one from Gary Weiss in Portfolio (which is apparently going out of business), which is a sot profile, and this much harder-edged piece in the New York Times, suggesting that Geithner is part and parcel of the old-boys club on Wall Street.

Even as banks complain that the government has attached too many intrusive strings to its financial assistance, a range of critics — lawmakers, economists and even former Federal Reserve colleagues — say that the bailout Mr. Geithner has played such a central role in fashioning is overly generous to the financial industry at taxpayer expense.

An examination of Mr. Geithner’s five years as president of the New York Fed, an era of unbridled and ultimately disastrous risk-taking by the financial industry, shows that he forged unusually close relationships with executives of Wall Street’s giant financial institutions.

His actions, as a regulator and later a bailout king, often aligned with the industry’s interests and desires, according to interviews with financiers, regulators and analysts and a review of Federal Reserve records.

Wow. That's a bit of a bombshell. And it's backed up with a fair bit of knowable facts. You can draw conclusions from who Geithner met with and where he ate dinner, but you can draw far more lasting conclusions from the fact that stress tests appeared to look tougher on regional banks than the large Wall Street players. You can build a narrative out of friends and associates, or you can just take a look at the hundreds of billions flowing to the biggest banks, while consumer lending programs fail utterly to deliver for regular people. While the banks whine about the constraints put on them by the government and feel reluctant to participate in government programs designed to boost the economy, I think you can make a compelling case that the banks have been coddled while the people continue to struggle.

I agree with Joseph Stiglitz here:

To Joseph E. Stiglitz, a Nobel-winning economist at Columbia and a critic of the bailout, Mr. Geithner’s actions suggest that he came to share Wall Street’s regulatory philosophy and world view.

“I don’t think that Tim Geithner was motivated by anything other than concern to get the financial system working again,” Mr. Stiglitz said. “But I think that mindsets can be shaped by people you associate with, and you come to think that what’s good for Wall Street is good for America.”

In this case, he added, that “led to a bailout that was designed to try to get a lot of money to Wall Street, to share the largesse with other market participants, but that had deeply obvious flaws in that it put at risk the American taxpayer unnecessarily.”

And the facts in the marketplace reflect that instance of snap-psychology. However, I would add that Geithner is one person. In fact, the revolving door between Washington and Wall Street is much bigger than the Treasury Secretary. The argument that the oligarchs have essentially taken control of government does not depend on him. So I wouldn't make so much of this. I would say that the coziness between these two seats of power represents a real threat to getting us out of this economic crisis.